By Leah Ryder
Your credit score is an important aspect of your financial profile. It may be used to determine some of the most important financial factors in your life, such as whether or not you’ll be able to lease a vehicle, qualify for a mortgage or even land that cool new job.
And considering 71 percent of Canadian families carry debt in some form (think mortgages, car loans, lines of credit, personal loans or student debt), a good credit score should be a part of your current and future plans.
High, low, positive, negative - there’s more to your score than you might think. And depending on where your number falls, your lending and credit options will vary. So what is a good credit score? What about a great one? Let’s take a look at the numbers.
How your credit score is set
Canadian credit scores are officially calculated by two major credit bureaus: Equifax and TransUnion.
They use the information in your credit file to calculate your score. Factors that are used to calculate your score include your payment history, how much debt you have and how long you’ve been using credit.
What’s in a number?
In Canada, your credit score can range from 300 to 900. The higher the score, the better. A high score may indicate that you’re less likely to default on your repayments if you take out a loan.
Here’s a general breakdown of where credit scores rank (as per Equifax Canada) in terms of your general ability to qualify for lending or credit requests such as a loan or mortgage.
Note that this range can vary slightly depending on the provider, so this an approximate guideline only. The best way to know where your score stands is to check your credit report:
● 750 to 900: Congratulations! You have an excellent credit score. Keep reaching for the stars, but you might be surprised to learn that a 783 and an 846 may not make a significant difference to a lender, as one Canadian couple found out.
● 650 to 749: You have a good credit score! You should expect to have a variety of credit choices to choose from, so continue your healthy financial habits.
● 575 to 649: This is considered “fair” to lenders. You may not qualify for the lowest interest rates available, but keep your credit history strong to help build your credit health.
● 500 to 574: Your score could be better. History of debt repayment will be important to demonstrate your solid sense of financial responsibility.
● 300 to 499: Your score needs some work. Keep reading for some score improvement suggestions below.
How to go from good to great (or bad to good)
To borrow from Leo Tolstoy, all great credit scores are alike, but all bad credit scores are bad in their own way. That is, an ideal credit score is built on a similar set of healthy financial habits, but your score can be damaged by any number of factors. There are many different issues that can hurt your credit score, such as:
● Late or missed payments.
● Too many (or too few) open credit accounts.
● High credit card balances.
● High balances on loans.
● Too many credit applications.
The first step toward improving your credit health is avoiding getting trapped in the highs and lows of managing your credit.
Heather Battison, vice president of TransUnion Canada explains how consistency is key: “The most important factor for building and maintaining your score is to pay your bills on time and in full each month. This activity demonstrates your ability to responsibly manage credit and can positively impact your credit score.”
It’s also key to remember that your payment history isn’t just about paying your credit card bill. “It also includes things like your cellphone bill,” says Trevor Gillis, associate vice president of account management at TD Credit Cards.
Gillis says building a good credit score is “based on using your credit card responsibly, which means making at least the required monthly minimum payment (if you can’t pay off the balance in full), making your payments by the payment due date and keeping your credit card utilization low.”
Beware of third-party companies that claim they can quickly boost your score. According to the Office of Consumer Affairs, only your creditors are able to alter the information on your credit file. When it comes to building good credit, there are no shortcuts.
Here’s the good-to-great news: Improving your credit health isn’t only achievable, but also the steps involved can help you establish an overall healthy financial life. Read our tips for everyday ways you can improve your credit health.
Help keep your credit score as healthy as possible by reviewing your credit reports regularly to ensure they’re accurate. Making the decision to apply for a loan or credit card is a big deal - don’t let a surprise score get in the way of it.
There are ways to check your credit score directly from TransUnion and Equifax. However, you’ll either be waiting for snail mail delivery (with the added risk of loss or theft in transit), or paying a fee for one-time online access (or a recurring cost for continued access).
Credit Karma gives you free online access to your credit score and report from TransUnion any time. Score!